The Insurance Commission (IC) issued Circular Letter (CL) No. 2018-12 which provides the rules governing the infusion of real property to cover net worth deficiencies and capital impairment of insurance companies. Under CL No. 2018-12, whenever the paid-up capital or net worth of an insurance company doing business in the Philippines is found to be less than the amount required under the Insurance Code, and before said company shall exercise its option to cover its deficiency/ies in the form of non-cash contributions, said company's president must first certify under oath that all efforts to infuse cash, or to cause the infusion of cash, by the stockholders in accordance with the provisions of Section 200 of the Insurance Code have been exhausted and consequently failed; and that non-cash infusion was only resorted to as a result of such exhaustion and failure.
Real property shall only be allowed for the purpose of purchasing equity of an insurance company if:
a. The real property infused by the life or non-life insurance company in exchange for equity shall be utilized in accordance with Section 206(b)(1) of the Insurance Code, which provides for the holding of real properties which serve as the insurance company’s main place of business and/or branch offices as long as the total value of such investment shall not exceed twenty percent (20%) of its net worth as shown by its latest financial statement approved by the Insurance Commissioner; or
b. lf the infused real property is or shall be used for housing projects and/or as an investment for the production of income:
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i. For life insurance companies: The infusion shall be governed by the provisions of Section 208 (a) and (b) of the Insurance Code, whereby the aggregate book value of said class of investment shall not exceed twenty-five percent (25%) of the total admitted assets of the concerned life insurance company as shown in the latest financial statement approved by the Insurance Commissioner; or
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ii. For non-life insurance companies: The infusion shall be governed by CL No. 2017-43 dated 22 August 2017, except that the concerned company shall not be required to comply with the condition that only those non-life insurance companies with a minimum net worth of five hundred fifty million pesos (PHP550,000,000.00) and have complied with the liquidity requirements may invest in income producing real properties. The aggregate book value of said class of investment shall not exceed twenty percent (20%) of the net worth of the concerned non-life insurance company as shown in the latest financial statement approved by the Insurance Commissioner.
However, in the event that said infusion shall adversely affect the liquidity of the company, the real property infused within the purview of the guidelines under paragraph b, above may be provisionally admitted provided, that: The concerned company infusing said real property shall liquidate the property within one (1) year from the time the same was provisionally admitted as an asset. The president of the insurance company, as authorized by the company’s board of directors, is required to execute an Affidavit of Undertaking to this effect.
The full text of CL No. 2018-12 is available
here.
